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Sir Philip Green has paid off the bank debt behind his fashion empire Arcadia after landing a £950m windfall from selling a 25pc stake in Topshop and Topman.

The billionaire tycoon has confirmed that Arcadia has sold a stake in Topshop and Topman to US private equity firm Leonard Green & Partners.

The deal values Topshop at £2bn. This includes an enterprise value of £1.4bn – with Leonard Green paying Arcadia £350m of cash for its 25pc stake.

Sir Philip could also gain access to as much as £600m of debt which can be raised against the newly separated company, according to the terms of the agreement.

He said the debt, which Leonard Green has encouraged Topshop to raise for expansion, will for the time being “sit there as a piece of paper” but that it could be converted to bank funding when needed.

As well as handing Sir Philip a £950m windfall, the tie-up with Leonard Green also allows Arcadia to maintain ownership of Topshop’s flagship store on Oxford Street, which is understood to be worth between £400m and £500m.

Sir Philip has used the £350m of cash to pay off Arcadia’s bank debt, which stood at £308.9m according to the company’s most recent accounts.

The retail magnate said that being debt-free would allow Arcadia – which also owns BHS, Dorothy Perkins, and Miss Selfridge – to “look at other opportunities to consolidate or acquire, either on our own or in partnership with LGP, who have substantial capital available in their new fund”.

Shares in Marks & Spencer rose 1.5pc on speculation that Sir Philip may make another takeover offer for the retailer. Sir Philip failed in an attempt to buy M&S in 2005.

He insisted that he was not currently considering any acquisitions, but added: “We will look at what opportunities come up.”

He also plans to invest in Arcadia’s existing businesses, including BHS, where M&S’s former head of menswear Richard Price has been hired to drive a £40m revamp of the brand.

The tie-up with Sir Philip is Leonard Green’s first deal in the UK. The firm also has stakes in Whole Foods Market, Petco and US fashion retailer J Crew.

Sir Philip said that Topshop had “never been up for sale” but that a deal with Leonard Green had “developed” through a long-term relationship with the firm and its eponymous founder, who died in 2002.

The deal will allow Topshop to expand “quicker”, particularly in the US, according to Sir Philip.

Topshop already has shops in cities such as Sydney, Melbourne, Vancouver, New York, Chicago and Las Vegas. A new store is planned for Los Angeles next spring and Sir Philip is also understood to be in talks about opening a store in China.

Last month, Arcadia said annual pre–tax and pre–exceptional profits had risen from £133m last year to £167m. This was on the back of a rise in online sales, continuing growth in sales overseas, and an improvement in margins.

However, like-for-like sales in the UK fell by 3.2pc as it battled the economic slowdown in its home market.